Net Multipliers Avoid Exaggerating Impacts: With A Bi–Regional Illustration for the Dutch Transportation Sector

Industries often promote their interests by arguing that they have a big impact on the rest of the economy. This poses the question of how to measure the importance of an activity. To answer this, the literature often uses (regional) input–output analysis. This paper critically reviews the traditional use of multipliers in such cases. To avoid double–counting impacts and to solve related conceptual problems, the net multiplier concept is introduced. This net multiplier is illustrated empirically for the Dutch transport sector using a Type II biregional input–output model for the Netherlands.     

IMPLAN's Induced Effects Identified Through Multiplier Decomposition

An analysis of regional multipliers is developed to reveal a structural flaw in how IMPLAN computes induced effects. This analysis reveals a fixed ratio across sectors between total and Type I employment multipliers, and that IMPLAN's "Type III" income multipliers are inversely related to the average wages in the direct and indirect sectors, and that "Type III" output multipliers are not affected by wages. A multiplier decomposition is developed that separates direct and indirect effects from the induced and further separates the induced impact into relative wage and regional income retention effects. The decomposition is useful in making comparisons among impact models.     

The Neoclassical Economic Base Multiplier

In this paper we derive an analytical expression for the regional neoclassical economic base marginal employment multiplier. The model that we adopt is a variant of the 1-2-3 general equilibrium model used in trade analysis. Its specific neoclassical characteristics are that laborsupply is a positive function of the real consumption wage and that factor and product demands are price sensitive. We calculate the employment multipliers associated with both a demand and supply stimulus to the basic sector. We demonstrate that it is possible for the marginal economic base multiplier to take any positive or negative value. However, the value of the marginalmultiplier is likely to approximate the value of the conventional average multiplier the closer production and utility functions are to Cobb-Douglas specifications and the more elastic is the labor supply function.     

The Net Effects of Large Plant Locations and Expansions on County Employment*

This paper argues that the net economic impact of new firm locations or expansions is determined by a multitude of opposing forces. Using a unique database, I set out to evaluate the net effects of these opposing forces by looking at the net change in local employment and population arising from large (greater than 300 new jobs) firm locations or expansions in the State of Georgia. The analysis suggests that the employment multipliers associated with new firm locations are much less than one; that is, the net employment effect of a large firm opening is smaller than the gross employment impact. This result is consistent with other empirical economic impact studies, which find multipliers much smaller than those of typical input–output models, often less than unity, and a previous study showing little net effect of large plant openings. Expansions of existing establishments are shown to have substantial multiplicative effects, however, with an average employment multiplier of 2.0. I discuss possible reasons for differential impacts across new and expanding firms, focusing on the nature of the firms. Differences in net impact across industries and high‐tech versus low‐tech firms also is evaluated. I find that the impact of large firm locations or expansions on population in the resident county generally is negative, but positive for the broader region encompassing the county of location and its contiguous neighbors.     

Local employment multipliers for large publicly subsidized firms: Evidence from a synthetic control approach

This paper provides estimates of local employment multipliers from large, publicly subsidized firms. We use a synthetic control weighted difference-in-difference estimation procedure that matches treated areas with comparison areas to generate local employment multiplier estimates. We show that local employment multiplier estimates have a high degree of uncertainty, with a wide range of point estimates (both positive and negative) and varying degrees of statistical significance. There is a concentration of positive employment multipliers from manufacturing facilities, but little correlation between estimated multipliers and subsidy value. We demonstrate that our approach produces drastically different results than a traditional difference-in-difference approach.     

NONSURVEY INPUT-OUTPUT ESTIMATION TECHNIQUES: EVIDENCE ON THE STRUCTURE OF ERRORS

ABSTRACT This paper concerns the nature and extent of error introduced to regional input-output multipliers by errors associated with the estimation of regional purchase coefficients (rpc's). Using the Washington State input-output model and computer simulations, estimates of multiplier error are generated for two distinct sources of rpc error. The results indicate that multiplier error from both rpc sources may be significant and support the findings of previous studies which highlight the importance of error introduced to the household purchases column for multiplier accuracy.     

Spatial Interpolation and Disaggregation of Multipliers

Most non-survey methods of estimating single-region multipliers have been shown to produce a systematic upward bias, unless a considerable amount of "superior" data is added. Here it is argued that this conclusion does not need to apply to the case of a non-survey, spatial disaggregation of multipliers. The method proposed consists of four steps with two substantive formulas. The first secures the non-survey interpolation of the lacking intra-regional multipliers for the smaller regions by means of regression. The second secures the non-survey spatial disaggregation of the inter-regional spillovers by means of second-order distance decays. The method is illustrated numerically by means of the interpolation and disaggregation of the 2 × 14 Type II biregional employment multipliers for aggregate Dutch regions into one 40 × 40 inter-regional employment multiplier matrix for the Netherlands as a whole.     

MODELING DYNAMIC INTERINDUSTRY REGIONAL GROWTH IN THE PRESENCE OF STRUCTURAL SHIFTS AND OUTLIERS*

ABSTRACT. Kraybill and Dorfman (1992) propose a model of intermediate and export demand which uses ordinary least-squares and linear systems techniques to produce a state-space representation of the time element of output change. Their model produces dynamic multipliers which trace the temporal path of regional growth, and has many advantages over previously employed time series methods. This study extends their methodology to accommodate structural shifts and outliers found in the least-squares relationship between industry and export output by using a recently-introduced technique–multiprocess mixture estimation. An application of the Kraybill-Dorfman method and the extensions proposed here to monthly time series data on Ohio employment is used to illustrate these issues.     

SPATIAL HEDONICS AND THE WILLINGNESS TO PAY FOR RESIDENTIAL AMENITIES*

ABSTRACT We investigate the role of spatial multipliers when using spatial‐lag hedonic models to measure the benefits of residential amenity improvements. Such benefits are commonly measured using the product of the coefficient of the amenity in question and a spatial multiplier. We show this is correct only when the spatial spillovers transmitted through the multiplier are strictly technological. If they are instead strictly pecuniary, then benefits are fully measured using the coefficient with no spatial multiplier. In either case, or in intermediate cases where both types of spillovers exist, a spatial‐lag specification is required to obtain valid benefits measures.     

A DYNAMIC INTRSECTORAL,MODEL OF REGIONAL ECONOMIC GROWTH*

ABSTRACT. The dynamic relationship between sectoral value added and regional economic growth is analyzed using a stochastic intersectoral model estimated by ordinary least squares and linear systems techniques. A state-space portion of the model identifies the time element of sedoral value added. Dynamic multipliers, tracing the temporal path of regional growth, are calculated for the state of Georgia over the period 1963–1986. This application shows that the impacts of sectoral shocks can follow cyclical as well as monotonic patterns and that the direction and magnitude of the impact may change over time.     

A NEOCLASSICAL ANATOMY OF THE ECONOMIC BASE MULTIPLIER*

ABSTRACT Keynesian export base theory ignores the supply side of the economy, while trade models may overemphasize resource constraints. A general equilibrium model which stakes out a position between those extremes is developed and used to define rigorously the components of an economic base (EB) multiplier. Capital moves freely in and out of the regional economy, but the factor land is fixed. Interregional labor movements are caused by wage differentials. Factor and relative commodity prices are determined endogenously. Demand and supply sides of a small regional economy are included. The relationship between average and marginal EB multipliers, and between key parameters (regional size, several elasticities, etc.) and the marginal multiplier are discussed. The Keynesian constant EB multiplier can be derived from a special case of the model.     

LEAST SQUARES ESTIMATES OF THE REGIONAL EMPLOYMENT MULTIPLIER: AN APPRAISAL*

Basically, we have attempted to show the following in the course of setting out the algebra of regression analysis of selected regional employment multiplier models: (1) When the basic features of the model are shaped by the assumption of an unlagged response of local employment to changes in export employment, the least squares estimates of the multipliers are highly sensitive to the export coefficients vector A, given the sample observation matrix X. In a completely disaggregated model such as Equation (21), the multipliers are solely determined by the export coefficients and thus are entirely independent of sample observations. However, this independence does not hold in the case of a partially disaggregated model. The identity relation is also destroyed when a lag relationship is introduced into a completely disaggregated model. (2) A simple lag model produces results bascially different from those obtained by an unlagged model if the overall differences between current and lagged observations are significant. (3) Given a matrix of sample observations on employment, it is possible to estimate the upper limits of a least-squares aggregate multiplier and its variance simply from knowledge of the export coefficients (4) The export coefficients vector has also an important bearing upon the correlation coefficient. The correlation is unity if and only if the export coefficients vector is proportional to the local employment coefficients vector, while it is zero if and only if the export coefficients vector is a vector all of whose elements are one. Also, the correlation coefficient is equal to one when a completely disaggregated model is used. There is finally the question of what these results mean in terms of the formulation of a multiplier model. First of all, in view of the crucial importance of the export coefficients and the difficulties of estimating them, most of the existing models do not seem to offer promising results. Furthermore, all the models examined here have made some simplifying assumption with respect to the constancy of the export coefficients. It remains highly uncertain whether these coefficients are reasonably stable over time. Of course, it would be theoretically more acceptable to relax the assumption of the invariance of export coefficients and to obtain such coefficients at different points of time for each industry. However, this would be accomplished only at the cost of increased difficulties of estimating larger numbers of export coefficients. In addition, there is some doubt as to the validity of the assumption that export employment is proportional to export sales. Since a lag relationship is important not only in terms of attempts to formulate multiplier models more realistically, but also in terms of its significant effect on the multiplier values obtained, the nature and the form of a lagged response and its estimation problems need to be investigated in depth. Finally, problems of least squares bias and efficiency, inference, and prediction which may arise in the context of various models presented here remain to be investigated. A detailed analysis of such problems must be the subject of further investigation.     

Regional inequality in China during its rise as a giant exporter: A value chain analysis

China's exports success has implications for regional income inequality, because most of its export products are manufactured in the coastal zone. We propose a value chain-based accounting framework to quantify the contributions of exports to regional income inequality. We employ newly developed interregional input–output tables for China, which distinguish between processing export activities and ordinary export activities. We analyze the period 2002–2012, the decade during which China became the “Factory of the World.” We find that an RMB of processing exports contributed much more to regional inequality than an RMB of ordinary exports or domestic final demand. Still, changes in regional inequality (increasing in 2002–2007 and decreasing between 2007 and 2012) are much more due to rising ordinary exports in the first subperiod and the growth of domestic final demand coupled with changes in the configuration of value chains in the second.     

ON THE BIAS OF MULTIPLIER ESTIMATES*

ABSTRACT. This paper considers the bias of the matrix of multipliers when the underlying data are random. The traditional approach is to specify the stochastic nature of the input coefficients directly. It is shown that this approach implies a transactions table which is biased in a most unbalanced way. Next the practitioner's point of view, i.e., taking the transactions table as the source of random errors, is adopted. One of the results states that, within each row of the multiplier matrix, either the biases are zero, or positive biases are canceled out by negative biases in the sense that their weighted average is zero. The conditions are based on the idea that information on aggregates is more exact than information on their details. The usual asumptions of independence and unbiasedness of the individual errors are avoided. The results are shown to have a direct interpretation in connection with the RAS-updating procedure.     

Interpreting Spatial Economic Structure and Spatial Multipliers: Three Perspectives

The measurement and interpretation of spatial economic structure have presented many problems for analysts. The notion of a spatial multiplier has received even less formal attention; part of the motivation for this paper is the examination of the degree to which sectoral decomposition analysis might prove useful in illuminating the paths of interaction across space that are associated with changes in exogenous activity levels. In this paper, we present three perspectives that examine spatial structure in the context of an aggregated interregional social accounting matrix for Bangladesh. These perspectives examine structure at the micro-, meso-, and macrolevels and are interpreted with the assistance of several alternative methods, including structural path analysis, the field of influence, the superposition principle, multiregional feedback loop analysis, and the Matrioshka Principle; the results are interpreted analytically and cartographically. Some attention is also devoted to the formulation of a general approach to spatial multipliers. It is shown that the structure of flows and the structure of influence reveal patterns that, taken together, provide important insights into an understanding of structure and may prove to form the basis for the eventual formal presentation of the spatial multiplier.     

ON THE RELATION BETWEEN USERS' BENEFITS AND THE ECONOMIC EFFECTS OF TRANSPORTATION ACTIVITIES

ABSTRACT. The addition of output variation benefits to the users' surplus generated by transportation improvements has been subject to debate, and no agreement has been reached. In this paper, the problem is restated at the level of the origins of transportation demand, which can be derived from the information provided by the economic activity. It is shown that a competitive productive environment makes the transportation consumers' surplus exactly equal to the net economic benefits provoked in the products' markets; however, when monopolistic production prevails, the users' surplus may not reflect the benefits to the economy with accuracy. Mixed conditions are also explored and the role of final products' demand elasticity is highlighted. Different styles of welfare analysis are recommended for different market conditions.     

Linked population and economic models: some methodological issues in forecasting,analysis, and policy optimization

Some problems associated with demographic-economic forecasting include finding models appropriate for a declining economy with unemployment, using a multiregional approach in an interregional model, finding a way to show differential consumption while endogenizing unemployment, and avoiding unemployment inconsistencies. The solution to these problems involves the construction of an activity-commodity framework, locating it within a group of forecasting models, and indicating possible ratios towards dynamization of the framework. The authors demonstrate the range of impact multipliers that can be derived from the framework and show how these multipliers relate to Leontief input-output multipliers. It is shown that desired population distribution may be obtained by selecting instruments from the economic sphere to produce, through the constraints vector of an activity-commodity framework, targets selected from demographic activities. The next step in this process, empirical exploitation, was carried out by the authors in the United Kingdom, linking an input-output model with a wide selection of demographic and demographic-economic variables. The generally tenuous control which government has over any variables in systems of this type, especially in market economies, makes application in the policy field of the optimization approach a partly conjectural exercise, although the analytic capacity of the approach can provide clear indications of policy directions.     

Economic Interdependence Within the Chicago Metropolitan Area: A Miyazawa Analysis

The present study explores the nature and strength of economic interdependence between inner-city communities and suburbs within the Chicago metropolitan area. Employing Miyazawa's extended input-output framework, a multiregional model is used to investigate the interdependence of income formation and output generation. The metropolitan area is divided into four regions and particular attention is directed to predominantly minority areas on the south and west sides of the city of Chicago. The region-to-region impacts of trade flows and their associated multipliers proved to be far less important in determining the strength of interregional interdependence in contrast to income flows derived from journey-to-work movements. The interrelational income multiplier revealed considerable interdependence between regions although the strength of this interdependence was asymmetric.     

China's "Dash for Gas": Challenges and Potential Impacts on Global Markets

Two UK-based researchers examine the significant recent growth in China's demand for natural gas, a fuel not long ago considered of marginal importance but now viewed as critical for the country's future economic growth. Based on a range of databases as well as industry and media reports, the authors demonstrate how rapid demand growth since 2005 has transformed China from a minor, self-sufficient gas producer to a major buyer on international gas markets. They also analyze projections for future demand growth (25 years), showing China's demand for gas will grow faster that anywhere else in the world, and explore the potential for development of China's substantial domestic gas reserves to mitigate import demand over the short to medium term. The study concludes with an assessment of China's potential impact on global gas markets over short, intermediate, and long time horizons.